This Incredible Dividend Growth Stock's Hidden AI Story Could Deliver 20% Annual Returns
The market is completely missing what's happening at S&P Global (NYSE: SPGI).
While investors obsess over the latest artificial intelligence (AI) start-up or trendy tech stock, this 165-year-old financial data powerhouse is quietly orchestrating one of the most compelling margin expansion stories in the market.
The combination of an upcoming business spinoff, aggressive AI integration, and a management team that's already proved it can achieve 50.9% GAAP operating margins creates a setup that could deliver double-digit annual returns for the next 10 years.
The company nobody's talking about
S&P Global might not grab headlines like the AI darlings, but this $160 billion company touches nearly every corner of the global financial system. The company operates through four main divisions: Ratings, providing credit ratings on $17 trillion in debt; Market Intelligence, which deals with financial data and analytics; Indices, including the S&P 500; and Platts, which involves commodity pricing. A fifth division, Mobility, is set to be spun off in 2026.
Here's what matters: In 2021, before acquiring IHS Markit, S&P Global achieved GAAP a operating margin of 50.9%. Yes, you read that correctly. This financial services company was generating profit margins that would make most software companies jealous. Today, those GAAP operating margins are projected to be around 43% in 2025 as the company continues to digest the massive acquisition. But management has a clear path back to those historic highs.
The AI revolution Wall Street isn't watching
While everyone focuses on chatbots and image generators, S&P Global is using AI to transform the economics of financial data. The company's Kensho division, acquired for $550 million in 2018, has become the cornerstone of an AI strategy that management says is driving significant productivity gains and workflow efficiencies across operations.
S&P Global has developed AI benchmarking tools through Kensho that evaluate large language models for business and finance use cases. These "S&P AI Benchmarks by Kensho" are gaining traction as standardized metrics to compare AI systems, with major companies such as Accenture partnering to use them. As more companies adopt these benchmarks, S&P Global could benefit from network effects that strengthen its competitive position.
The company has also deployed internal AI tools such as Spark Assist and client-facing assistants such as ChatIQ, which management describes as accelerating workflows and helping employees work more efficiently. Although specific cost savings haven't been disclosed, these initiatives are part of S&P Global's broader push to use AI to enhance margins and improve customer experiences.
The catalyst everyone's ignoring
The planned spinoff of S&P Global's Mobility division in 2026 represents more than just corporate restructuring. This business, which includes the valuable Carfax brand, generates about 11% of company revenue, accounting for $1.6 billion in 2024. Its removal will allow S&P Global to focus entirely on its highest-margin financial data and analytics businesses while unlocking an estimated $5 billion to $8 billion in value for shareholders.
Post-spinoff, S&P Global will be a cleaner, higher-margin business focused entirely on financial data and analytics. The simplified structure should help the market better appreciate the company's true earnings power. Conglomerates typically trade at discounts to focused pure plays, and removing the Mobility business eliminates that complexity discount.
Numbers that demand attention
Wall Street sees adjusted operating margins reaching 52% by 2029, exceeding even the company's 2021 peak. The company's 2025 outlook already shows progress, with guidance calling for revenue growth of 4% to 6%, GAAP earnings per share of $14.60 to $15.10, and adjusted earnings per share of $16.75 to $17.25. That gap between GAAP and adjusted earnings reflects the ongoing impact of acquisition-related amortization.
Here's the power of combining margin expansion with steady revenue growth: If S&P Global maintains 6% annual revenue growth, the high end of its 2025 guidance range, sales would reach $27 billion by 2035. Now add margin expansion: If GAAP margins return to their proven 50.9% peak from today's 43%, the earnings impact is dramatic.
Consider the math: $27 billion in revenue at a 50.9% GAAP operating margin generates $13.7 billion in operating income. After accounting for interest, taxes, and the narrowing gap between GAAP and adjusted earnings as acquisition costs fade, earnings per share could realistically reach $40 to $45, more than double today's levels. Even applying a conservative valuation multiple of 30 times earnings, which is below today's multiple, that translates to a stock price of $1,200 to $1,350.
Meanwhile, investors collect a growing dividend backed by 52 consecutive years of increases. The current yield of 0.76% might seem modest, but here's where dividend growth becomes powerful: If S&P Global continues raising its dividend at a conservative 10% annually, below its historical average, that $3.84 annual dividend could grow to roughly $10 per share by 2035.
For investors who buy today, that means collecting $10 annually on shares purchased for $504, a 2% yield on their original investment. This " yield on cost" concept rewards patient investors, as each dividend increase means more income on the same initial investment, regardless of where the stock price trades.
Why this incredible opportunity exists
S&P Global offers something increasingly rare in today's market: a proven business model with clear catalysts for margin expansion and a management team that's already demonstrated what's possible. While growth investors chase the next shiny object and value investors wait for deeper discounts, S&P Global sits in the sweet spot -- a quality compounder available at a reasonable price with multiple ways to win.
The upcoming spinoff provides the catalyst. The AI transformation provides the margin expansion. And five decades of dividend growth provides income while you wait. For investors seeking both growth and income, S&P Global's combination of margin expansion potential and reliable dividend growth makes it a compelling opportunity at current prices.
Should you invest $1,000 in S&P Global right now?
Before you buy stock in S&P Global, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P Global wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $664,089!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $881,731!*
Now, it's worth noting Stock Advisor 's total average return is994% — a market-crushing outperformance compared to172%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor.
See the 10 stocks »
*Stock Advisor returns as of June 9, 2025
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CBC
an hour ago
- CBC
Hudson's Bay landlords don't want Ruby Liu to move in, but retailer still has a shot
Social Sharing A group of Hudson's Bay's landlords don't want to transfer more than two dozen leases to B.C. billionaire Weihong (Ruby) Liu, but the department store still has a chance to get its way. The Bay, which filed for creditor protection in March, ran a process over the last several months to find buyers for leases belonging to it and Saks Canada. It agreed to sell up to 28 spaces to Liu. Three leases were transferred to her without any hiccups because they're in B.C. malls she owns, but another 25 are at properties held by a who's who of Canadian commercial real estate firms. Landlords for 23 of those sites oppose the transfer. Several have said in court they've been "very troubled" with their interactions with Liu and have had "no productive discussions, no meaningful disclosure." Liu insists if the court hands her the leases, landlords will warm to her and her plan to open a new department store in their properties. While the disagreement could serve as a roadblock to the Bay closing on its agreement with Liu, lawyers not involved in the case say the retailer has another route it can take to get a deal done. That route lies in changes to the Companies' Creditors Arrangement Act (CCAA) — Canada's main insolvency law — made in 2009, said Jeff Lee, a Saskatoon-based partner at MLT Aikins LLP. The changes laid out three criteria courts must consider when asked to assign leases to a new tenant. WATCH | Who is Ruby Liu? Who is Hudson's Bay benefactor and billionaire Ruby Liu? 3 days ago Duration 6:16 Ruby Liu, a billionaire with a big vision, now has legal permission to take over the leases of three former Hudson's Bay department stores located at three malls already under her ownership. For more on the new Bay benefactor, we're joined by retail analyst Carl Boutet. The first is whether or not the sale has the support of the monitor, a court-appointed, independent third party which helps guide businesses through creditor protection. In the Bay's case, the monitor is Alvarez & Marsal. It has yet to reveal whether it supports the Liu deal and did not respond to requests for comment. "Before any court application is brought forward, typically the company will test that out with them," Lee said. "They're not going to just sort of fly in blind and hope for the best." The second aspect for the court to mull is whether the proposed new tenant is suitable. Lee said that's determined by looking at whether they can perform the duties of the tenant and pay rent. Liu, who made her money in Chinese real estate, appears to have deep pockets but her experience comes from being a landlord rather than a tenant. The final aspect the court will consider is whether a transfer of a lease to Liu is "appropriate." Lee said people should think of it as asking this question: "Is what's proposed for this post-assignment lease relationship what people signed up for, or are they seeking to rewrite the lease or change the playing field so radically that it's not appropriate?" WATCH | What went wrong for Hudson's Bay: What went wrong with Hudson's Bay? 3 months ago Duration 5:49 That's where much of the tension could lie in the Bay case. "You can't go into CCAA as a tenant and then force your landlords to renegotiate their leases as a result," said Peter Tolensky, a Vancouver-based partner at Lawson Lundell LLP. The Canadian Press obtained a document last week that Liu's lawyer sent landlords outlining her plans. It says she will take on the leases on an "as is, where is" basis but doesn't mention the dining, entertainment, children's and fitness experiences she's told media she'd like to include in her department stores. It's unclear whether the leases allow for uses other than a Bay-like department store. Some lenders owed more than $100M A court faced with a request to reassign leases will weigh this context and think about whether "the landlord's world is being turned upside down by having this new tenant," said Geoffrey Dabbs, a B.C.-based founding partner at Gehlen Dabbs Cash. "The more it's a minor inconvenience for the landlord, the more likely the judge will order it," he said. While the Bay hasn't said whether it will seek an assignment, it's likely because any company in creditor protection has a duty to show the court it's doing its best to pay back companies and people it owes money to, Dabbs said. The Bay has a 26-page list of creditors, with some lenders owed more than $100 million each. Liquidation sales and a deal to sell the Bay trademarks to Canadian Tire for $30 million have put a dent in what's owed but selling leases to Liu would also help. Anyone who made an offer for leases had to make a deposit of 10 per cent of their estimated purchase price. Court documents show Liu made a deposit of $9.4 million, in addition to $6 million for the three approved leases, which would equate to a purchase price of $100 million for 28 leases. When a deal like this is reached, Dabbs said a company typically seeks landlord consent because commercial leases tend to have provisions stopping anyone from transferring a lease without a property owner agreeing. It's not uncommon for landlords to object because any leases that can't be sold and aren't assigned get turned back over to property owners who can choose how to fill them and under what terms. These are anchor leases, Tolensky noted. "So they're probably very favourable to the Bay or to the tenant in a lot of respects," Tolensky said, alluding to the fact that anchor tenants are often given attractive rents or terms. Thus, it's more advantageous for landlords to get their properties back, said Monica Beffa, founder of an Oakville, Ont., law firm. If they do, they can then charge higher rents, develop them for entirely new uses such as residential units or break them up into smaller parcels that can be rented by a wide array of tenants. If they don't and a court assigns the leases to Liu, landlords will likely be watching her closely to ensure she doesn't violate any terms of the agreement. Dabbs said: "The landlord may be cranky, if the tenant breaches, but put it this way, they don't want to rely on that.
CTV News
an hour ago
- CTV News
Lack of funding for e-buses could cause some to skip school
The E-Lion is the only zero-emission school bus currently on the market and is made entirely in Quebec. With the school year just coming to an end, the start of the 2025 school year is already shaping up to be complicated. The Quebec school bus federation (FTA) warns that many school buses are at risk of remaining parked in August due to a funding issue related to the shift to electric vehicles. A survey conducted by the FTA among its members reveals that, for 87 per cent of its members, electric routes were not profitable in the year that just ended. In an interview with The Canadian Press, the federation's executive director, Luc Lafrance, explains that the switch to electric vehicles significantly increases operating costs. In total, the FTA estimates that an electric bus costs an average of $14,000 more to operate than a gas-powered vehicle. Approximately 1,300 of the federation's 8,000 routes currently run on electricity. Beyond installation costs, the transport company is also responsible for maintaining charging stations, and electric vehicles require more expensive expertise to repair in the event of a problem. Repairs also tend to take longer, which pushes transport companies to have more replacement vehicles in case of a glitch. When the Quebec government mandated the purchase of electric vehicles in 2021, financial assistance was available to fund the transition. This support has been reduced from $12,900 to $5,000 this year, which is not enough, according to Lafrance. The funding cuts are causing a $12 million shortfall for transport companies, the FTA said in a statement. Lafrance said he met with the Minister of Education on Friday to express his concerns. The ministry did not immediately respond to a request for comment. This report by The Canadian Press was first published in French on June 28, 2025.
CBC
an hour ago
- CBC
DHL Express Canada strike, lockout to end after workers ratify new agreement, union says
Canada's largest private sector union says a three-week lockout and strike at DHL Express Canada is due to end because workers ratified a new agreement. Unifor said Saturday that the four-year agreement reached with the delivery company was ratified with 72 per cent support from members. It includes a 15.75 per cent wage hike, pension increases for hourly workers and a new pension for owner-operators. The agreement also features increases to short- and long-term disability payments, new mental-health benefits, a rise in severance and updated language around artificial intelligence, robotics and work-from-home policies. The agreement affects more than 2,100 DHL Express Canada employees who work as truck drivers, couriers and in warehouse and clerical roles. They were locked out after midnight on June 8 and went on strike hours later.
